State revenue collections dropped more than two percent last month compared to December 2010 according to the General Revenue report released Thursday.

The 2.1 percent drop is unwelcome news to a General Assembly already faced with a budget shortfall of nearly $455 million from the last fiscal year. State Budget Director Linda Luebbering described the revenue report with one word -- "bad."

Overall, year-to-date General Revenue collections saw a 1.2 percent gain compared to the last fiscal year. The gain, however, is still small compared to the estimated 3.6 percent revenue growth for fiscal year 2012 projected by top budget officials a year ago.

The hardest hit revenue area in 2011 was in corporate income tax receipts, which dipped 10.5 percent for the month of December. Sales tax receipts also dipped 4 percent last month despite the Christmas holiday shopping season.

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State agencies and Gov. Nixon would no longer be able to spend money outside the normal budget process if a top budget official is successful in eliminating the General Assembly's practice of granting that power.

Budget Chair Ryan Silvey, R-Kansas City, has said he plans on eliminating the General Assembly's practice of placing a "1E" on specific budget line items, which allows the governor and other state agencies to spend an unspecified amount of money on particular budget lines.

"It is unlikely there will be '1E' anywhere in this state's budget," Silvey said.

State Budget Director Linda Luebbering said she had some major concerns regarding Silvey's plan to eliminate the "1E" from the state budget. Her top concern focused on disaster relief, the same topic that has led to the proposed change.

"If that "1E" goes away and they don't put a very large number to replace it, we would be in jeopardy of not having the budgetary authority to do what we need to do to help communities recover," Luebbering said.

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In opening-day addresses on Wednesday, the top leaders of Missouri's House and Senate cited similar issues as top priorities for lawmakers to resolve in the legislative session that will run until mid-May.

Both Senate President Pro Tem Rob Mayer and House Speaker Steve Tilley stressed bi-partisan cooperation in their opening-day remarks.

"In seven years, I've done my best to foster bi-partisanship," Tilley told his colleagues. "When I go back to private life, my fondest memories will not be the bills I help pass or even the fights we won on the floor. Instead, it will be the moments of friendship I shared with both Republicans and Democrats, both House members and Senate members."

On the Senate side, Republican Mayer had the Senate's Democratic leader, Victor Callahan, join Republican leaders in the pre-session news conference.

Both Mayer and Tilley are serving their final year in their chambers -- blocked by term limits from seeking re-election.

The one note of partisan disagreement came on the Republican leaders' push for swift passage of a pro-business agenda.

"You're not going to bring back prosperity by lowering the middle class's wages and taking away their rights," Callahan said.

Also cited by legislative leaders as priority issues was balancing a budget that is facing nearly $500 million in federal funding reductions and dealing with the unaccredited schools in St. Louis and Kansas City.

"we must also address the revolving door of drop outs and failed policies in our state's two largest school districts," Mayer said in his Senate address." Both have a decades-old cycle of failing their students."

The top leaders of Missouri's legislature cited education funding as the "must-pass" issue for the 2012 session that begins Wednesday at noon.

"I've been here eight years and every year that we try to fix the broken schools with a different idea and all you hear is 'no.' And what ends up happening is that we get the status quo and we shuffle thousands of kids through failing schools," said House Speaker Steve Tilley.

Facing the state lawmakers is a funding problem with legal formula, called the School Foundation Formula, that allocate funds among local school districts.

The goal of the formula, to equalize per-student spending among school district, has failed because the state has been unable to sustain the level of funding increases required to achieve that goal.

Past efforts to fix the formula have run into opposition from legislators from some richer districts that would suffer state-funding reductions in order to shift money to poorer districts.

A group of lawmakers has been working in crafting a new approach. However Senate President Pro Tem Rob Mayer conceded that some opposition remained in his chamber's GOP caucus.

In addition to the funding formula problem, lawmakers face the problem of Kansas City joining St. Louis with school districts that have been stripped of state accreditation. Under state law, children in those districts have the right to attend schools in any other district -- an issue that has raised concerns from St. Louis County school districts.

The legislature's regular session begins just a few months after lawmakers failed in the summer special session to pass the governor's package of business tax breaks for economic development.

Mayer said that failure has created an incentive for the regular session. "A lot of legislators, including myself, were disappointed that we didn't get done what we wanted to during special session and that gives us the incentive to get some things done in this new session," Mayer said

Besides education, the state's budget will present a major challenge for state lawmakers. State officials estimate there will be a shortfall of $500 million or more for the budget year that will begin July 1.

For the last few years, the state has been balancing its budget with federal economic recovery money that has been used up. In addition, the federal government is lowering the share of funding it picks up for Medicaid that covers health care costs for the lower income. The federal government also has restricted states from making cuts in the program.

Legislative budget leaders have warned that higher education likely will suffer the brunt of the resulting budget cuts. In December, Gov. Jay Nixon's administration floated the idea of borrowing money from the state's larger universities to cover the budget shortfall. The idea quickly was rejected by legislative budget leaders.

Nixon is scheduled to present his budget plan to lawmakers in Jan. 17. The legislative session adjourns in mid-May.

Missouri's major business organizations presented a relatively small package of proposals on the eve of the legislature's regular session.

At a Tuesday news conference, the organizations presented three proposals -- none involving business tax breaks that had been pushed during the legislature's special session.

Instead, the proposals deal with other financial concerns of business -- imposing restrictions on discrimination lawsuits against business, imposing limitations on liability lawsuits against business and reversing a couple of court decisions expanding coverage for workers injured on the job.

"This is not a wish-list," said Missouri Chamber of Commerce President Dan Mehan. "We are putting Missouri jobs and Missouri workers at risk if we don't address these issues now."

The legislature had passed a discrimination lawsuit restriction bill in 2011, but it was vetoed by the governor.

In his veto letter, Nixon charged the bill "represents a significant retreat from the basic principles of fairness embodied in the Missouri Human Rights Act and erects unacceptable impediments to those victimized by discrimination and seeking to avail themselves of the Act's legal protection."

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